sg&a performance management

HOW TO GUIDE

HANDBOOKENTERPRISE PERFORMANCE MANAGEMENT

CHECKPOINT CONSULTING a

SG&A PERFORMANCE MANAGEMENT

HOW TO GUIDE: SG&A PERFORMANCE MANAGEMENT

2/8Copyright © 2013 by CheckPoint Consulting, LLC. All rights reserved.

Table of ContentsWho is this handbook for? .................................................................................................................3

What is SG&A? ...........................................................................................................................................3

Potential areas for improvement (sg&a accounts) ..............................................................3

Sustainably managing SG&A ............................................................................................................4

What’s the potential impact of improving SG&A performance? ...............................4

Gathering Data..........................................................................................................................................5

Turning data into useful information ..........................................................................................5

Analysis and Understanding.............................................................................................................5

What-If Scenarios .....................................................................................................................................6

SG&A Performance Management Initiatives ..........................................................................6

The Scope of an Initiative ...................................................................................................................7

Prioritizing Initiatives .............................................................................................................................7

Making and Tracking Commitments ...........................................................................................8

Summary ......................................................................................................................................................8

Some of the concepts and

ideas in this handbook are

used with permission from

“Enterprise Performance

Management Done Right”

by Ron Dimon (John Wiley

& Sons, 2013).

Available on Amazon.com



Who is this Handbook for?Everyone in the enterprise has an impact on SG&A expenses. From your salary, to the office supplies you

use, to the travel you take on behalf of the company. It’s everyone’s job to help maintain and control

these expenses. This handbook gives a background on SG&A performance management and explains

some approaches to managing the impact that SG&A expenses can have in the organization. To that

end, it will be especially useful for anyone in Finance, I.T. and business management — at all functions

and layers of the organization. Hopefully, some of the ideas and approaches in this handbook will help

you do your best thinking around optimizing SG&A expenses.

What is SG&A?Selling, General, and Administrative (SG&A) expenses consist of the combined costs of operating

the company, which breaks down to:

SELLING: Cost of Sales, which includes salaries, advertising expenses, rent, and all expenses and taxes directly related to producing and selling product

GENERAL: General operating expenses and taxes that are directly related to the general operation of the company, but don’t relate to the other two categories.

ADMINISTRATION: Executive salaries and general support and all associated taxes related to the overall administration of the company1

For companies that manufacture goods and services, these are sometimes referred to as

nonmanufacturing overhead costs.

POTENTIAL AREAS FOR IMPROVEMENT (SG&A ACCOUNTS)

Depending on your industry, you may encounter some or all of the following SG&A expenses:

Salaries and benefits for sales and administrative personnel

Commission & Incentives

Sales Headcount

Channel Enablement

Travel and Entertainment

Professional / Consulting fees

Training expense

Sponsorships

Procurement (excluding materials/merchandise)

Interest on business loans (depending on the size of business, this expense may have its own line item on the Profit & Loss Statement)

Marketing and advertising costs

I.T. expense

Office supplies

And the following expenses used by non-manufacturing functions:

— Rent

— Utilities

— Insurance

— Property Tax

— Property, building, and equipment depreciation and maintenance

1 Wikipedia — http://en.wikipedia.org/wiki/SG%26A



SUSTAINABLY MANAGING SG&A

SG&A Expenses help an enterprise deliver its objectives, including:

Revenue Growth

Operational Efficiency & Productivity

Asset Utilization

Cash Flow

Customer & Employee Satisfaction

However, they should be optimized at the “right” level to help deliver on the promises of the organization.

If they are at too low of a level, sales revenue could suffer. At too high a level, profitability could suffer.

There are at least five approaches to impacting SG&A expenses, including

1 Removal and elimination of expenses2 Reduction of expense amounts (partial elimination)3 Reduction of expense frequency (partial elimination)4 Avoiding incurring the expense in the first place (or avoiding future expenses)5 Managing expenses in line with plans and expectations (controlling)

The goal is to get to the right level of expenses that allow the company to sustain growth (revenue) and

be profitable (operating margin), while delivering goods and services that attract and retain customers.

What’s the Potential Impact of Improving SG&A Performance?It’s useful to take a holistic look at the organization and see how SG&A can have an impact in areas

you may not have thought of. Using a ‘value map’ approach is one way to visualize what drives SG&A

and what SG&A, in turn, drives.

In this value map we see that SG&A Expense has an

impact on the amount of training delivered and that

training can impact sales volume (sales training) and

collections (negotiation training). If an investment

is made in training in those areas, revenue can be

expected to increase, and bad debt write-offs would

decrease, which, in turn would improve the overall

profitability of the business, and eventually would

impact market share, brand, and other areas of the

business. This is an example of a “self funding” SG&A

expense.

This is just an example of how these value drivers

may be interrelated in one particular organization,

your drivers and connections (and business functions)

may be different.

There are four performance management processes

we can look at in more detail: gathering data (reporting), understanding that data (analytics), debating

the right next course of action (what-if modeling), and making commitments for results (planning).



Gathering DataA good place to start in managing your SG&A performance is to find out where you’re at. You’ll want to

look at your total SG&A expense broken-out by line item for the current period (year, quarter, month).

This data is usually stored in the General Ledger (GL) or, if you are a larger organization, stored across

multiple general ledgers and consolidated either in a consolidation system like Oracle’s Hyperion

Financial Management2, or in a corporate or main GL, or in a spreadsheet.

TURNING DATA INTO USEFUL INFORMATION

While SG&A line items for current periods is good raw-data, it’s more useful to turn this in to something

that may be more meaningful. Your organization probably has reporting or business intelligence tools

to help you do this. For example, if you can look at SG&A line items side-by-side for business units or

various geographies, along with corresponding sales revenue for those units or geographies, you could

look at a comparable ratio of expense as a percentage of sales. You could also do it by the headcount

per region to look at “SG&A per head.” This will help you look for averages and outliers. When you find

an outlier, you’ll want to ask why it’s an outlier – which brings us to the next step.

Analysis and UnderstandingIt’s one thing to look at a static point in time – your current actuals – and another thing to look at how

that has been varying over time. With historical data you can see how SG&A as a percent of sales is

trending over time, by comparable business units or geographies.

You’ll also want to look at how those ratios (SG&A/Sales and SG&A/Headcount) vary from the prior

period and from plans and forecasts. When you find a wide variance over time and over expectations,

you can ask why that was. Getting to the root cause of why there’s a variance helps you uncover problems

or circumstances that may be avoided in the future. Likewise, if you find excellent performance, you can

uncover best practices that you will want to repeat in other areas of the organization.

If your organization has a good multidimensional database like Oracle Essbase, you can add additional

dimensions of the data to analyze. A dimension is simply that thing that follows the word “by” when

you want to look at information, for example:

By Month, quarter and year

By Actuals versus Plan

By Business Unit

By Region

By Product

By Channel

By Account

And so forth…

Another thing you can do in a multidimensional database is drill-down from a summary level into more

detail. So you can start your analysis at total SG&A and when you find the hot spots, drill into those to

look for root causes.

2 CheckPoint Consulting focuses entirely on Oracle Hyperion software, so all of our examples in this handbook are based on those products.



What-If ScenariosAnother step you can take in your SG&A performance management journey is to take all the facts

you learned in your analyses and use those to create “what if” models to see the impact of making

financial and operational changes in the organization going forward. You can make simple models

in a spreadsheet, or you can use more powerful modeling tools to develop more complex scenarios.

A good starting place is to ask “what-if” you change (increase or decrease) the key drivers uncovered

when you did the value map earlier. For example, what if you increase headcount by 10%, what’s the

corresponding increase in SG&A (using SG&A as a percent of sales uncovered earlier), in sales revenue,

and, eventually, in operating margin. With some models you have to make assumptions — perhaps

‘ramp time’ in this example, the time it takes to get a new sales rep performing to quota — so long

as you expose those assumptions so they can be challenged. A great way to challenge an assumption

is to go back and analyze the data you have and uncover the facts instead of guessing.

Modeling a scenario is a great opportunity to debate what initiatives should be adopted by the

organization. Ideally, you’ll have a fact-based debate to arrive at the best scenarios.

SG&A Performance Management InitiativesIn looking for actions and initiatives you can take to improve SG&A performance, there are several

ingredients to consider, including:

PEOPLE — who will be impacted by new actions?

PROCESS — how will you do things differently?

TOOLS/TECHNOLOGY — what tools can you use?

DATA — what data and information do you need?

Here are some options for each ingredient to help you think about designing your initiative:

PEOPLE PROCESS TOOLS/TECH DATA

Hiring Centralize Dashboard Actuals

Reduction Decentralize Spreadsheet Prior Period

Training Automate Repository Historical

Certification Speed-up Portal Plan / Forecast

Outsourcing Slow-down Database Variance

Expertise Customize OLAP3 External

Rewarding Standardize Simulation Unstructured

Accountability Rationalize Social Media Statistics

Responsibility Remove steps Mobile Apps Competitive

More junior Combine steps Modeling Benchmark Internal / ExternalMore senior Gamify4 Alerting

3 OLAP stands for On-Line Analytical Processing and is also know as a multidimensional database or a “cube.” Think of it as a pivot-table on steroids.

4 Gamification is the process of adding game-like features to a process, including awarding points, ranking players, and increasing difficulty of challenges.



The Scope of an InitiativeFor each SG&A improvement initiative, consider the scope of its impact. Or another way to say that

is to think about who is involved. You can include:

A person or team

One or more Departments

A Group (e.g.: a region, an office, all senior managers, etc.)

The Company

External parties

Prioritizing InitiativesIn a good brainstorming session, it’s not unusual to come up with dozens of possible actions or initiatives

that will positively impact SG&A. So how do you prioritize those and find out which ones to do first?

The easy answer is that you need some criteria for prioritization. The hard answer can be coming up

with those criteria. Some organizations just want the fast and cheap ones, some want the ones with

the largest long-term benefit, but usually, we find that the following to be a good place to start:

Value to the business, and

Ease of Implementation

Value to the business is usually ranked on a materiality scale, meaning which initiative will have the

highest positive impact on revenue or margin. However, other factors can be used to gauge value

including customer satisfaction, share price, or overall impact to the most parts of the organization.

Ease of implementation can include a variety of factors like availability of systems, quality of data,

and organizational readiness.

A good process for coming to consensus is to score all of the initiatives across each of the ‘value

to the business’ and ‘ease of implementation’ criteria, and even to weight those criteria.

The consensus debate is generally revealing and useful in itself. Here’s a sample output from one

prioritization process:

After debating and

plotting each initiative,

three strata were created

to further divide the

initiatives into high,

medium, and lower

priority since the

organization had

limited resources

to tackle more than

a few initiatives at once.

Cross-Sell Plan

Work from Home

Loyalty Program Advertising

Negotiating Training

Compliance training

Sales Training

Localize I.T. Services

Centralized Supply Purchasing

Supplier Terms

Hiring Planning

Telepresence not Travel

Viable Comp Models

SG&A Forecasting

Busin

ess V

alue

Ease of ImplementationHARD EASY

HIGH

Highest PriorityMedium Priority

Low Priority

LOW

Preventative Maintenance



Making and Tracking CommitmentsOnce you’ve agreed on the right initiatives to tackle, your project management expertise will kick-in

to ensure execution. One final step in SG&A performance management is to document the expectations

and commitments made by the accountable parties. This is best done in a plan with targets and

a forecast to track progress against plan. In order to have targets, you’ll need to quantify what results

the initiative is expected to deliver.

For example, if your initiative is to use video conferencing or telepresence capabilities to replace some

travel expenses, one of the highest priorities in the example above, you will need to quantify:

The cost to acquire (rent or buy) and use (operate) and support the new capabilities

The number of people who will be required to use video instead of air travel

The expected reduction in travel expenditures

Then each of those targets will be spread by month and by business unit and/or department

to create more granular sub-targets. This becomes the plan and concerned parties work the plan.

Each month actual results are reported against the plan, and the concerned parties may have an

opportunity to forecast what they think will happen for a certain time period in the future. By looking

at the variance of actuals plus forecast against the plan, and drilling into the details, you’ll be able

to manage departments to their commitments.

SummaryManaging SG&A Performance is a process. Each of the steps above is not

done in isolation, and each depends on the other for a system of performance

management. It looks like this:

And SG&A Performance Management answers the questions:

Where are we now? (Reporting)

Why did we get our results? (Analysis)

What can we do about it? (Modeling), and

Who is going to do what, by when? (Planning)

Hopefully this handbook can help you in thinking about ways to improve

SG&A performance sustainably and continuously.

100 West Big Beaver | Suite 200

Troy, Michigan 48084

800.601.0760

checkpointllc.com

About CheckPoint

CheckPoint Consulting is one of the largest privately held boutique firms focused on providing complete

Enterprise Performance Management (EPM) solutions to Fortune 1000 companies. With over 20 years of

experience in the Oracle Hyperion space, Managing Partners Timothy J. Halk and Gregory M. Feld lead a team

of highly qualified and multi-certified consultants experienced in all aspects of EPM and Business Analytics.

As a Certified Oracle Platinum Partner, CheckPoint has successfully implemented hundreds of EPM solutions

including Strategy Management, Financial Close and Reporting, Oracle Planning, Budgeting, and Forecasting,

Oracle Profitability and Cost Management, and Oracle Business Intelligence Tools and Technology.

SG&APerformance Management

Model N

ew

SG&A Scenarios

Report

Actual S

G&A

Plan and

Forecast SG&A

Analyze SG&A

TARGETS

DRILLDOWN

FACTS VARIANCE

If you would like more

information, or help

with your performance

management initiatives,

please contact

[email protected].

http://www.checkpointllc.com

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